Expertise

Buying off-the-Plan

It’s important to consider the multiple risks in purchasing an off-the-plan property before you sit down and sign your contracts.

Buying off-the-plan is when you enter into a contract to acquire property prior to completion of construction of the dwelling and/or registration of the plan of subdivision.

As the product has not been finished at the time of entering into the contract it’s important to have someone experienced in the area review the agreement. Failure to thoroughly review the contract may expose the purchaser to a range of avoidable risks.

At Kells, we can help by conducting a thorough review of the contract and negotiating changes that are necessary to protect your position. Below are just some of the elements of purchasing off the plan that our team can discuss with you.

Check up on both the builder and developer

Make sure the developer has a good reputation. Ask to look at previous developments so that you can inspect the quality of the finish and also ask previous purchasers about the developers/builders quality of work and willingness to rectify defects. Also make sure to inspect older developments. It’s often the case that defects take time to appear.

Be warned however that you are contracting with a developer who is at liberty to appoint/replace the builder. Just because one development was built well does not mean that the same company will be engaged for the next development. Furthermore, many off the plan contracts provide the right for the developer to assign their rights in the contract, meaning that the party who actually does the development may not be who you originally contracted with or did your original due diligence on.

Make sure the price is right

New developments attract a premium price. Try to avoid being sold on the quality of fixtures and finishings. Look more to similar buildings in the area and value properties on a square meter basis. Professional assistance can be sought in this regard and is strongly recommended.

How are you going to pay the purchase price on settlement?

Once contracts have exchanged and any cooling off period has lapsed (if applicable) contracts become unconditional. This means that a failure to obtain finance will not alleviate you of your responsibility to complete the contract. This may be an issue as financial institutions will not be able to provide you unconditional loan approval until construction/registration has finalised. As a result, the following circumstances may mean you fail to obtain finance when called to settle:

  • Changes to your financial situation
  • Banking lending criteria
  • Valuations
  • Settlement date.

What are you buying?

Make sure you are clear on exactly what will be included in the property. Purchasers will often rely on advertising and marketing material in determining what is included. However, contract provisions will generally exclude pre-contractual representations and advertising material. It is vital that you be explicit in the contract regarding the fixtures and finishings to be included. If you expect a particular brand or model ask your solicitor to incorporate it into the contract. Vague references to “European appliances” offer little to no security as to the quality of appliances to be installed.

Variations

Nearly all off-the-plan contracts will incorporate provisions allowing the vendor to make alterations to the original plans. It is essential that you have a solicitor review these terms and conditions. These provisions can vary widely from allowing you to pull out of the contract if there has been any variation which is other than minor, all the way up to only allowing you out if the variation has had a substantially detrimental impact upon the value of the property.

Also, be clear on what your rights are when such alterations are made. Most contracts will only allow you to rescind the contract rather than making a claim for reduction to the purchase price. This can be a difficult decision to make, especially when considering that it may have been some time since you originally entered into the contract and increases in the market value mean little opportunity to pull out and find something else of comparable quality at the same price.

Where possible try and be explicit as to the types of changes that can be made and the degree of such changes. It is common for provisions to be added which state that changes in the size of the property by any greater than 5% will allow you to pull out of the contract.

Try to limit the vendor’s ability to make alterations at their discretion. Contracts will often provide the developer with the ability to make changes if they deem them “desirable”. It’s one thing to make changes due to requirements of the local council, and/or a relevant authority, it’s another for the developer to make changes purely to derive a greater profit.

Warranty Insurance

Generally, when residential building work is done over a set threshold, Home Warranty Insurance is provided. However, exemptions apply to owner builders and multi-storey developments. Make sure you are clear on your avenue of recourse should problems arise with your purchase.

Defects

Contracts will often require that you complete the purchase of the property despite the presence of minor defects. Again, the wording of these clauses can vary significantly. However, generally speaking, the vendor provides a warranty that they will rectify these defects within a reasonable time frame after settlement. Try and include as long a warranty period as possible, these can vary from 30 to 90 days. The longer the better as some defects will take time to appear. Also, be cautious of clauses that only allow you to submit a list of defects on one occasion.

Dispute Resolution

Should disagreements arise, informal dispute resolution clauses can provide a great alternative to costly and uncertain litigation. It’s desirable for both parties to include provisions that should there be disagreements (for example on whether the substitution of a fixture is suitable), that an independent party be appointed with the ability to make findings which are binding.

Adjustments

Contracts will often require adjustments on costs which the vendor incurred. Paying your share of Council rates, water rates, insurances are reasonable, however, often contracts will go beyond and try and pass on a share of other vendor liabilities such as Land Tax. Depending on the purchaser’s current property ownership, such provisions may be viewed as unreasonable as it attributes a share of the vendor’s tax liability to the purchaser who would not otherwise have incurred the liability.

Other considerations

There are a multitude of other contractual provisions to consider when entering off the plan such as GST, notice periods, by-laws, services and warranties. The above list is in no way exhaustive and you should always consult with a solicitor knowledgeable in the area before signing any contract.

Buying property or a home is one of the most stressful and expensive things you will ever do. It is vital that you seek legal advice from someone experienced in property law and who knows the area.

At Kells, we can talk with you and be beside you as you take the steps towards owning your home or property.

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